Friday, 25 September 2015

About two weeks ago, I attended a two-day conference in Singapore - Asian Offshore Support Journal (AOSJ). This is an event where industry people gather. To explain simply, the Offshore Support industry consists of companies that own, build or in one way or another related to the Offshore
Support Vessels (OSV) supply chain.

Today’s oil price only partially explains
present market difficultiesin the offshore support vessel sector, DVB
Bank’s head of shipping and offshore research told delegates at Riviera’s third
annualAsia OSJ
conferencein
Singapore on Tuesday. The
sharp decrease in the oil price partly explains the present recession in the
OSV sector, Henriette Brent-Petersen told an audience of more than 200 industry
professionals, including representatives from some of the industry’s leading
charterers, owner/operators and suppliers. Cost inflation, a reduction in the
barriers to entry for offshore shipbuilding and the fact so many companies are
highly leveraged also play a significant part.

Drawing parallels with the bulk carrier
market, Ms Brent-Petersen warned that shipyard overcapacity and the
fact newbuilding production cycles are so fast, means that the sector
risks "killing any rebound in the market before it even starts".

Setting
the tone for the day’s discussions with a candid but positive presentation,
Rolls-Royce commercial marine’s senior vice president Richard Bowcutt
acknowledged that the industry was "in the middle of a perfect
storm". He
said: “We need to look beyond a difficult one-to-two-year horizon and work on the
things that we can do.” These
included preparing for tighter regulations, fuel diversity – ‘there will be a
place for LNG’ – and a continued geographical shift of the industry as it moves
into deeper, more remote and dangerous waters, including the Arctic. “The way
we support, service and finance assets will change,” he said. The
future will be defined by greater integration and better use of industry
intelligence, even if the industry’s commitment to big data was presently big
talk.

The
idea that stakeholders should focus on the things they can control carried over
into the ‘View from the top’ panel discussion, with POSH chief operating officer Lee Keng Lin joking that every phone
call was from an oil major looking to cut costs.

Pacific Radiance’s James Pang said the key was "right-sizing"
an organisation by ensuring that it is optimised to meet the jobs it has. His
company pursues a policy of entering cabotage markets as their complex and
demanding operating environments serve as a barrier to entry for others.

Other
participants in the session included Miclyn Express Offshore’s Diederik de Boer
and Swissco Holdings’ Sam Kwai Hoong.

An
entire session was devoted to current market opportunities. Triyards chief executive officer Chan Eng
Yew said liftboats represented ‘a new OSV class’ and reported significant
contract success here. He also said that Vietnam – where the group has two
facilities – was the new China. He believed that the yards were
capable of at least matching Chinese production and could offer more
competitive prices.

EMAS Offshore’s chief executive officer Jon Dunstan said
demand for maintenance, modification and operations services was encouraging
and benefited from being a feature of owner/operator capital expenditure rather
than operational expenditure. He also
spoke favourably of the market for offshore accommodation vessels, pointing out
that they would always be needed on oil field developments. This view was
endorsed in a very complete paper presented by PT Bayu Maritime Berkah
president Adi Agung Tirtamarta.

M3
Marine Group’s Mike Meadesaw good long-term prospects in deep-water
believing that over time prospects here will eclipse those offered by the shale
revolution.

As a
senior representative with a Chinese shipyard Mr Yap also fielded questions on
the Chinese shipbuilding industry more widely. “There are some serious
misconceptions around Chinese financing,” he told the gathering. The idea
that yards would routinely require just a five or ten per cent deposit on
newbuildings was misplaced. Such contract offers were one-off ‘silver bullets’
designed to propel a yard into a new segment.

Their
appeal in today’s environment had also waned as yards have found that
speculators who paid such minimal deposits could now walk away from their
contractual commitments relatively easily. He refuted the idea that Chinese
banks are mandated to lend irrespective of the prevailing economic climate.

Chinese
yards do not fear the competition provided by Vietnamese yards, he said, but
they had been concerned earlier this year that favourable exchange rates and
proximity to European owners would boost the fortunes of Turkish yards at their
expense.

This
fear has dissipated as the year has gone on. Mr Yap said that Nantong Rainbow
was now looking to diversify into new markets with lift vessels and the
renewables sector being looked at.

Day 2 - 9 Sep 2015

Delegates at Riviera’s Asian Offshore
Support Journal Conference in Singapore heard that Malaysia is
Southeast Asia’s star performer. Confidence was also expressed in offshore
India, West Africa and in the Middle East.

However, offshore Brazil
remains a frustrating market and the Mexican Gulf is falling short of the hype
seen a year ago.

Effects on Keppel, Sembcorp or Ezion?

Speaking
in the regional round-up panel discussion on day two of the conference Yinson
Holdings general manager Lim Choo Heang said his company was “offered up a
contract twice a month in Malaysia” and cited the country’s offshore prospects
as “the best in the Southeast Asia region.”

He
acknowledged that when dealing with the authorities “contractually it was
sometimes one-way traffic”, but when it came to practical operations he found
the environment straight forward and conducive to doing business.

In a
characteristically open presentation, Mr Del Rio acknowledged that
Brazil-flagged vessels were being favoured to the exclusion of internationally
flagged ones. Asked
to rank the regions in terms of ease of operation and rate of return on
investment, Mr Telfer said Brazil came last in both categories. He added that
operators were not helping themselves by “cutting each other’s throats by
offering rock-bottom rates when tendering”.

Prospects
in the Mexican Gulf are presently not matching the hype seen even a year ago,
Mr Telfer added, although he foresaw a quicker turnaround in this region’s
fortunes compared to equally hyped Iran. West
Africa was talked of in largely favourable terms while Namibia was referred to
as geologically – but not politically – similar to Brazil.

“Petrobras themselves have been looking
at Namibia,” said Mr Telfer, although Mr Del Rio was quick to point out that a
few years ago Brazil’s Petro Rio had looked at this prospect but decided not to
follow through.

Mr
Horsington cautioned smaller owner/operators against taking contracts “any
time, anywhere”, even though the temptation in today’s challenging market is
obvious. “Being niche, having presence and connections is what counts,” he
said.

Other
sessions on day two looked at the economic case for new technologies, the
challenges of maintaining a long-term vision when facing short-term pressures,
dealing with contract termination and regulation.

A poll
of the conference delegates produced more than 40 different predictions for the
biggest opportunity in 2016.

The
most popular views were: IMR and subsea vessels; Iran; LNG; vessel scrapping;
mergers and acquisitions; India; and an industry-wide efficiency drive.

Disclaimer

This blog and its contents contain the opinions and views of me. It is not a recommendation to purchase or sell the stocks of any of the companies or investments herein discussed. If a reader requires expert financial advice, a competent professional should be consulted. I cannot guarantee the accuracy of the information contained herein the blog and its contents. Other than being the shareholders of some of the stocks discussed herein at the time of writing, I am not in any way related to the company mentioned within the blog. I specifically disclaim any responsibility for any liability, loss, or risk, professional or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any contents of this blog.